IBC Nuclear Energy Liability Exclusion. Explained

Transcription

1 IBC 2100 Nuclear Energy Liability Exclusion Explained By Colleen DeMerchant Assistant Manager Nuclear Insurance Association of Canada June 22, 2005

2 Nuclear Energy Liability Exclusion (IBC 2100 CGL form) explained. By Colleen P. DeMerchant, General Manager, Nuclear Insurance Association of Canada INTRODUCTION The production and use of atomic energy involves hazards of a special character and potentially far-reaching consequences. A special regime for nuclear third party liability is necessary since the ordinary law is not well suited to deal with the particular problems in this field. Indeed, if the ordinary law were applied, there are several different persons who might be held liable for damage caused by a nuclear incident and victims would, in all likelihood, have great difficulty in establishing which of them was in fact, liable. Moreover, that person would have unlimited liability without being able to obtain complete insurance cover. The prime objective of this special regime is to ensure the adequate compensation of damage caused to persons and to property by a nuclear incident. The core of the third party liability problem is upon whom, in what proportions and on what conditions, the risk of legal liability for damage caused by nuclear incident should fall. The solution to this problem involves reconciling the various interests in question: compensating as fully as possible the victims, limiting the liability of the Operator and exempting all other persons from liability. This reconciling of various interests in question has led to a system based on the following principles: Strict liability, that is to say, liability without fault; Exclusive liability of the Operator; Limitation of this liability in amount and in time; Obligation on the Operator to cover his liability by insurance or other financial security. 1 The Nuclear Liability Act (NLA) 2 is a federal statute that describes the liability regime and the consequent financial responsibility of operators of any facility that is designated as a nuclear installation. Such a designation applies to nuclear facilities where nuclear fission is possible or where spent nuclear fuel may be stored. Operators of these facilities must comply with the requirements under this Act. This legislation encompasses all the principles outlined above that are embodied in the international conventions on nuclear liability. All other applications using radioactive material, in settings away from designated nuclear installations, are addressed outside this special regime (the NLA) as the consequences are neither catastrophic nor uninsurable in the commercial market. The General Liability policy language is carefully constructed to carve out the catastrophic nuclear exposure and retain with the GL insurer s expertise the manageable nuclear exposures. The following provides an explanation of the relevant and often overlooked clause. NUCLEAR ENERGY LIABILITY EXCLUSION (IBC FORM 2100) There are three sections of this exclusion to GL policies which are outlined and explained in paragraphs (a), (b) and (c) below: 1 Introduction from the Exposé des Motifs of the Paris Convention. 2 The Nuclear Liability Act is currently under revision by Natural Resources Canada

3 Exclusion Preamble and exclusion (a) This insurance does not apply to: Nuclear Energy Liability a. Liability imposed by or arising from any nuclear liability act, law or statute, or any law amendatory thereof; The liability or duty imposed by the Canadian Nuclear Liability Act (NLA) is to secure that no injury to any other person or damage to any property of any other person is occasioned as a result of the fissionable or radioactive properties, or a combination of any of these properties with toxic, explosive or other hazardous property of (a) nuclear material that is in the nuclear installation of which he is the Operator; 3 Further this liability is absolute to the Operator. The Operator is, without proof of fault or negligence, absolutely liable for a breach of the duty imposed on him by this Act. 4 There are two other aspects which are important to refer to here. These are the exclusivity of the regime, meaning, when a nuclear incident occurs, all damages must be administered under the Act and further recourse through the courts is not permitted. Further the Operator has no right of recourse against any person in respect to his liability under this Act. 5 This principle of channeling, as described, is a common thread found in most nuclear liability legislation in generally all jurisdictions of the world that have nuclear facilities used for commercial purposes. This common theme is no accident, but is a carefully constructed regime in order to accomplish two goals and to accommodate the unique and legitimate concerns of the insurers: Firstly, it allows for large capacities of insurance to be available for liability coverage for the Operators without the limits being reduced or restricted by the need to make separate sums insured available for nuclear liability to parties other than the Operator. Examples include contractors who work on power stations and suppliers of equipment and materials used in power stations. Secondly, it allows potential victims of a nuclear incident a clear cut path to apply for compensation it is not necessary to identify the responsible party as would be the case in a tort-based regime. Here the victim has to merely prove causality and not negligence. Therefore, the exclusion (a) of the Nuclear Energy Exclusion works to ensure there will not be double coverage for Operators (under the NLA as well as their own GL policy), nor for contractors and suppliers of materials. 3 Nuclear Liability Act, Section 3. Duty of Operator 4 Nuclear Liability Act, Section 4. Absolute Liability of Operator 5 Nuclear Liability Act, Section 10. Limitations

4 Exclusion (b) b. Bodily injury or property damage with respect to which an insured under this policy is also insured under a contract of nuclear energy liability insurance (whether the insured is unnamed in such contract and whether or not it is legally enforceable by the insured) issued by the Nuclear Insurance Association of Canada for any other insurer or group or pool of insurers or would be an insured under such policy but for its termination upon exhaustion of its limit of liability; This exclusion must be read within the context of excluding the nuclear energy hazard and not interpreted that all bodily injury and all property damage for those insureds who may also have a contract of nuclear energy liability insurance be excluded by virtue of the nuclear energy liability insurance. The intent of this exclusion is to ensure that the GL policy does not to respond in excess of a NIAC policy, even upon the exhaustion of a NIAC policy s limit. An example of this would be a nuclear operator who also has a GL policy. The nuclear operator, by law must carry a Nuclear Energy Liability policy with NIAC to cover their financial responsibility under the NLA. This provides only nuclear liability coverage. The Operator must also carry a GL policy to protect him for negligence. The GL policy should not be looked to for further compensation for a nuclear incident. Exclusion (c) c. Bodily injury or property damage resulting directly or indirectly from the nuclear energy hazard 6 arising from: 1) The ownership, maintenance, operation or use of a nuclear facility 7 by or on behalf of an insured; 2) The furnishing by an insured of services, materials, parts or equipment in connection with the planning, construction, maintenance, operation or use of any nuclear facility; 6 Defined terms within this clause. As used in this policy, the term nuclear energy hazard means the radioactive, toxic, explosive, or other hazardous properties of radioactive material; The term radioactive material means uranium, thorium, plutonium, neptunium, their respective derivatives and compounds, radioactive isotopes of other elements and any other substances which may be designated by any nuclear liability act, law or statute, or any law amendatory thereof, as being prescribed substances capable of releasing atomic energy, or as being requisite for the production, use or application of atomic energy; 7 The term nuclear facility means: (a) Any apparatus designed or used to sustain nuclear fission in a self-supporting chain reaction or to contain a critical mass of plutonium, thorium and uranium or any one or more of them; (b) Any equipment or device designed or used for (i) separating the isotopes of plutonium, thorium and uranium or any one or more of them, (ii) processing or packaging waste (c) Any equipment or device used for the processing, fabricating or alloying of plutonium, thorium or uranium enriched in the isotope uranium 233 or in the isotope uranium 235, or any one or more of them if at any time the total amount of such material in the custody of the insured at the premises where such equipment or device is located consists of or contains more than 25 grams of plutonium or uranium 233 or any combination thereof, or more than 250 grams of uranium 235; (d) Any structure, basin, excavation, premises or place prepared or used for the storage or disposal of waste radioactive material; and includes the site on which any of the foregoing is located, together with all operations conducted thereon any all premises used for such operations.

5 3) The possession, consumption, use, handling, disposal or transportation of fissionable substances 8, or of other radioactive material (except radioactive isotopes, away from a nuclear facility, which have reached the final stage of fabrication so as to be usable for any scientific, medical agricultural, commercial or industrial purpose) used, distributed, handled or sold by an insured. Exclusion (c) requires the greatest detail in explanation. There are three sub parts, which require technical understanding. Subpart 1) Ownership, maintenance, operation or use of nuclear facilities. 1) Nuclear Facilities The GL excludes bodily injury and property damage resulting from the nuclear energy hazard arising from the following nuclear facilities. In layman s terms, these facilities may be categorized as one of the following: Nuclear Facilities. (a) Apparatus used to sustain nuclear fission or to contain critical mass. This definition would describe a nuclear reactor core, where actual fission takes place. Examples of nuclear reactors are commercial power reactors and research reactors. (b) (c) (d) Device designed for separating isotopes of plutonium etc. and processing or packaging waste. This definition isolates fuel reprocessing facilities. There are no commercial reprocessing facilities in Canada. (Further, waste in this context refers to radioactive waste.) Device used for processing etc. plutonium, thorium or enriched uranium. This definition describes facilities which produce weapons grade uranium or plutonium. As part of the Non Proliferation Agreement, Canada does not have any facilities such as this. Any structure, basin, excavation, premises or place prepared or used for the storage or disposal of waste radioactive material. This definition describes nuclear waste management facilities. The GL exclusion is designed to carve out the nuclear exposures presented by these types of facilities due to the presence of fissionable substances on site. A fissionable substance, under the correct circumstances will generate a self-sustaining nuclear chain reaction, which could cause catastrophic consequences. This is clearly an area the commercial market should not be involved in, except as a participant in the nuclear insurance pool. It is also important to point out that the radioactive waste referred to in part (b) and part (d) refers to specific elements of uranium, thorium, plutonium, neptunium and their respective derivatives and compounds, and other elements and substances which may be designated by any nuclear liability act.as being capable of releasing atomic energy, or as being requisite for 8 The term fissionable substance means any prescribed substance that is, or from which can be obtained, a substance capable or releasing atomic energy by nuclear fission.

6 the production, use or application of atomic energy. (See definition of radioactive material.) This section does not refer to radioactive waste from commercial sources such as medical radioactive waste. Subpart 2) The furnishing by an insured of services, materials, parts or equipment in connection with any nuclear facility This portion of the exclusion provides that suppliers of services, materials, parts or equipment which are furnished to a nuclear operator are not covered for nuclear exposures under their own GL policy. (They are, however, covered for other GL exposures as only coverage for losses arising from the nuclear energy hazard are excluded.) To further strengthen this regime, the Operator s Policy language has an omnibus insured clause 9 which includes any other person or organization with respect to this legal liability because of bodily injury or property damage caused by a nuclear incident arising from the operation of the installation. Accordingly, such suppliers are unnamed insureds under the Operator s Policy. Subpart 3) The possession, consumption, use, handling, disposal or transportation of fissionable substances, or of other radioactive material used, distributed, handled or sold by an insured. A fissionable substance is a material which is capable of releasing atomic energy by nuclear fission. The fissionable substances or radioactive material referred to in this clause used within the nuclear power industry is uranium, thorium, plutonium, or neptunium. Therefore, the GL policy will not respond to any claims resulting directly or indirectly from the radioactive, toxic, explosive, or other hazardous properties of radioactive material for any nuclear reactors, nuclear fuel fabricators or reprocessors, weapons grade facilities or waste management facilities. (It is important to note that reprocessing of spent nuclear fuel is prohibited in the United States and is not considered economically viable in Canada.) This provision delineates the nuclear exposures that are insured by NIAC and what are insured under the GL policies. Basically, NIAC insures the nuclear exposures from any nuclear material which is fissionable in nature and the GL policy is designed to insure the rest. 9 NIAC Operators Form DEFINITION OF INSURED A. UNDER COVERAGE A, the unqualified word "insured" includes (a) the named insured and (b) any other person or organization with respect to his legal liability for damages because of bodily injury or property damage caused by a nuclear incident arising from the operation of the installation. Subdivision (b) does not include as an insured the Government of Canada or any of its Provinces or any of their Agencies, exc ept any such province or Agency thereof as operator of a nuclear installation. Subject to Condition 3 and the other provisions of this policy, the insurance applies separately to each insured against whom claim is made or suit is brought. B. UNDER COVERAGE B, the unqualified word "insured" means the named insured and also includes any other person or organization with respect to his legal liability, pursuant to the laws of any reciprocating country, for damages because of injury or damage arising from the operation of the installation and for which the operator of the installation is liable under the Act. As used herein "reciprocating country" means a country which the Governor in Council has declared to be a reciprocating country for the purposes of the Nuclear Liability Act.

7 The exposure that is left for commercial insurers is the conventional general liability exposures of the Operators and any contractors or suppliers and nuclear materials that are outlined in the exception to this part of the exclusion, below: (except radioactive isotopes, away from a nuclear facility, which have reached the final stage of fabrication so as to be usable for any scientific, medical agricultural, commercial or industrial purpose) Contractors and suppliers of services to a nuclear generating station present no different exposure to the commercial insurer than the exposures from any other industrial insured or conventional power plant as the nuclear exposure has been removed. Any nuclear isotope which meets all these qualifications above should be risk assessed and underwritten under the GL policy by the commercial insurance market. This includes all exposures presented by these isotopes including radioactive contamination. The isotopes which fall into this category are used in many commercial and industrial applications such as: Diagnostic nuclear medicine X-rays Radioactive Tracers In Vitro methods Positron Emission Tomography (PET) Radionuclide manufacture Therapeutic nuclear medicine Food irradiation Non destructive testing and inspection and gauging Agricultural applications Geology applications Civil engineering applications Insect control Smoke detectors in homes Safety applications Detecting land mines Archaeology applications (carbon14 dating) It is clearly not the intent that all such risks be written by the national insurance pool intended to insure the catastrophic risk associated with nuclear fission. It is important to point out that none of the isotopes used in these applications can cause a nuclear incident (ie: they cannot go critical). However, radiation damage can result from exposure to many of these isotopes if the shielding is inadequate. These isotopes are very strictly controlled by the CNSC to ensure that appropriate industry safe guards and training are in place to prevent these risks. A balanced approach by the market is needed whereby the truly catastrophic exposures are insured under the channeling concept through the nuclear insurance pool and supported by all commercial markets as a complement to the nuclear exclusions in all the insurance policies and all other commercial exposures be assessed, risk managed and underwritten through the commercial market.

8 Experience Matters NUCLEAR INSURANCE ASSOCIATION OF CANADA 401 Bay Street, Suite 1600, Toronto, ON Canada M5H 2Y